Archive for the 'Pensions' Category

Never before has the need for infrastructure felt so immediate and acute. This became apparent to me as I travelled to Nairobi, Lagos, Lusaka and Gaborone during the first 3 months of this year.

RisCura has partnered with Africa Investor to launch Africa’s first infrastructure performance benchmark. The first results are expected in mid-2019 and will provide much-needed insight. This should facilitate increased investment into African infrastructure projects

A commonality I saw across all these African cities — the yellow metal equipment either excavating, tilling, scooping or pouring inputs — could result in an improved outcome for Africa’s infrastructure. According to the World Bank, closing Africa’s infrastructure quantity and quality gap has the potential to increase GDP per capita by as much as 2.6% per annum.

Historically, governments have borne the responsibility for infrastructure development as infrastructure is typically considered a “public good”. However, in most African States, governments are struggling to keep up with the level of development required.

To combat the continent’s infrastructure deficit, alternative sources of funding are needed, and institutional investors are increasingly seen as natural funding partners, given their long-dated liabilities that seek inflation-linked assets.

But, not all infrastructure assets offer the virtues of hedging inflation. It is important for investors to understand the different categories of infrastructure assets, as well as the different life-stages of their development, as these result in different cash-flow profiles. There are 2 main types of infrastructure investment – greenfield and brownfield.

“Greenfield infrastructure investment” refers to investments that create new infrastructure – new development and construction. For an investor, some inherent risks of these projects include construction risk, performance risk and off-taker risk. The creation of the asset primarily involves funding the project, with risk of the project not reaching a stage of being commercialized. At this stage of development, the infrastructure asset would not manifest any inflation-hedging features.

“Brownfield infrastructure investment” refers to investments in existing and ready-to-operate infrastructure assets. These assets can potentially generate revenues. Given that the infrastructure now exists and is in use, the risks of investing into this project are substantially less than in a greenfield project where the future cash generation is uncertain.

Because many infrastructure assets feature monopolistic features (e.g. a toll road that all road users must utilise to access a specific town), cash generation for such assets is easy to model. Brownfield infrastructure investments are also often scalable; by enhancing the facilities, greater output can be produced and therefore greater cash flows. These features allow for the cash flows emanating from brownfield infrastructure investments to be modelled to escalate or be linked to inflation and the cash flows can be used to match against long-dated liabilities because of the long-dated nature of the operating capacity of most infrastructure assets.

With an understanding of the fundamental merits of the asset class, it is important to appreciate how institutional investors in Africa would traditionally approach the asset class. Prudential investment requirements might preclude them from taking up exposure to a single asset (e.g. one toll road) and they could invest in a diversified portfolio of infrastructure assets. This can be achieved by investing in a fund, where the fund is able to give investors diversified exposure to the asset class. However, it is important to appreciate that most infrastructure investments would be classified as unlisted investments.

Most institutional investors are relatively risk-averse and may not have investment mandates allowing for investing in unlisted instruments. Thus, for long-term savings to be channelled towards African infrastructure assets, the investment mandates (inclusive of the regulatory thresholds) would need to be revised to accommodate investments in unlisted instruments and more specifically, infrastructure assets.

In addition to revised mandates, institutional investors would benefit from a performance index for infrastructure investments in Africa. This would improve their ability to evaluate the available investment opportunities, monitor the performance of infrastructure investments and make better informed decisions on asset allocation.

RisCura has partnered with Africa Investor to launch Africa’s first infrastructure performance benchmark. The first results are expected in mid-2019 and will provide much-needed insight into investment in this sector, which should in turn facilitate increased investment into African infrastructure projects. In time, this should contribute towards closing Africa’s infrastructure gap and help boost economies across the continent.

• One of the key challenges pension funds face: identifying enough appropriate, local investment opportunities to invest ever-increasing contributions• Deregulation of prescription will unlock capital to flow where it is required in Africa

RisCura’s annual Bright Africa 2018 report is a highly recommended read on Africa’s capital markets. Check out the interactive website and download the short report at brightafrica.riscura.com.

Africa’s pension fund assets are now thought to be $372bn, according to leading pension fund consultancy RisCura. Some 90% of these assets are concentrated in Nigeria, South Africa which has $307bn in AUM, or 82%, Namibia and Botswana. Further, a few large funds dominate, including: Government Employees Pension Fund (GEPF) in South Africa, Government Institutions Pension Fund (GIPF) in Namibia, Botswana Public Officers Pension Fund (BPOPF), and a few large funds in Nigeria.

(NOTE, in a comparable story in 2015 we noted that total pension fund assets in 10 African countries were $379 billion in assets under management (AUM),85% or $322bn of this was based in South Africa. The change since 2015 may partly be due to currency decline at the time of compiling the statistics)

According to the Organization for Economic Cooperation and Development (OECD), total pension fund assets in OECD member countries in 2016 totalled $38 trillion, of which $25trn is held in the US, followed by Canada ($2.4trn) and UK ($2.3trn), the three countries making up 78% of the total pension assets.

In OECD countries, pension funds made up 50% of the economy, measured in gross domestic product (GDP) in 2016, up from 37% in 2006, while in other countries measured (“non-OECD countries”), they rose to 20% of GDP from 12%.

The table below shows pension fund assets in selected different African markets, according to data collected by RisCura. Assets under management (AUM) total $306.7bn in South Africa (pension AUM are 104% of GDP), $16.8bn in Nigeria (lots of space to grow as pensions are 4% of GDP), $10.7bn in Kenya (16% of GDP), $10.5bn in Namibia (99% of GDP), and $7.2bn in Botswana (48% of GDP). There is huge potential for growth in Egypt where pension AUM are estimated at 1% of GDP, Tanzania (10%) and Uganda (7%), Ghana (7%) and even Zambia (3%).

African Pensions statistics collated by RisCura

In OECD and non-OECD countries, pension fund assets are predominantly invested into bonds and equities, with 45% of assets allocated to equities. As capital markets have grown and regulators have advanced, the proportion of African pension funds invested into equities has increased, but in Nigeria and East Africa local currency bonds predominate. Local regulation is a key driver of asset allocation and often does not match the opportunities: “In many countries assets are growing much faster than products are being brought to market, limiting investment opportunities if regulation does not allow for pension fund to invest outside of their own countries” says RisCura.

“African pension funds have a pivotal role to play in facilitating inclusive growth and social stability. Larger pools of capital allow for investment in economic and capital market development,” argues the Bright Africa report. It says there is an urgent need to build resources: “Local institutional investors add credibility and often serve as a catalyst for greater external interest. Local investors also allow global peers to leverage local knowledge and networks.”

RisCura urges other countries to follow the lead of South Africa, Nigeria, Namibia and Botswana (we can also add Kenya to this list) in allowing pension funds to invest into private equity – in Nigeria the National Pension Commission (PENCOM) allows for 5% of assets into private equity as an asset class, which would amount to $842m on 2016 figures, but 75% must be invested in Nigeria and general partners have to be able to invest at least 3% in the fund, limiting the options and size of investment.

The report also highlights a huge role for supporting Africa’s urgently needed infrastructure development (Africa Infrastructure Country Diagnostic estimates $93bn per year of investment needed). However, it is important that frameworks created are compatible with the mandates and risk and liquidity factors, as well as “mindful of prudential oversight and limits necessary for pension and savings investment” says RisCura.

For these stats and more on the changing dynamics of retirement in Africa, download the excellent Bright Africa report and visit the interactive website. More than half, 52%, of African males over 65 years and 33% of females were “active in the labour market” in 2015, compared to 10% older men and 6% older women in Europe. Pensions in Africa are also seeking to adapt to the fact that many Africans earn and save informally, including Micro Pension Scheme in Nigeria where the informal sector is thought to be 70% of the workforce with 38m potential contributors and the Mbao Pension Plan of Kenya, using M-Pesa or Airtel Money mobile transfer services.

Learning from Latin America
The challenge to create structures so that pension funds can invest in local infrastructure projects and help develop the capital markets has led to some innovative ideas across Latin America. There are lessons for African regulators of pensions and social security as well as for those promoting public-private partnerships for a full range of African infrastructure, including roads, bridges, telecoms, hospitals and house. Here are a couple of examples (from a 2017 World Bank paper by Fiona Stewart, Romain Despalins and Inna Remizova).

Mexico’s CKDs (Certificados de Capital de Desarrollo) securities are traded on the Mexican Stock Exchange (Mexican Bolsa/BMV) and were created in July 2009 with the mandatory pension funds (Siefores) as their key source of capital. CKDs are designed to boost infrastructure projects from ports to electricity and water, and real estate amounted to 30% of the total since 2009. Regulator CONSAR has deregulated investment restrictions for Siefores in stages to allow them to invest into private equity, real estate and infrastructure projects through CKDs.

Peruvian funds have created trust structures to allow pension funds to invest in infrastructure projects. The World Bank has helped Columbia develop infrastructure debt funds which pension funds can invest into.

Excellent recent research

Several excellent papers have been published this year. Here are some of them, with links to their sources.

Maurer, Klaus (April 2017). “Mobilization of of Long-term Savings for Infrastructure Financing in Africa”. Study prepared for Germany’s Study prepared for Federal Ministry for Economic Cooperation and Development (BMZ). Bonn. Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) GmbH, available here. Sources include 2 articles on this blog in Feb 2017 and in Mar 2015!

Sy Amadou (Mar 2017). “Leveraging African Pension Funds for Financing Infrastructure Development”. Washington, DC. African Growth Initiative of The Brookings Institution with NEPAD and the United Nations Office of the Special Advisor on Africa (OSAA). Available from Brookings.

Another good resource is African Development Bank’s Making Finance Work For Africa (MFW4A).

Here is my article on a critical area for Africa to develop, creating the right atmosphere for productive investments by Africa’s growing pension funds. It is published in African Banker magazine and you can access it on the africanbusinessmagazine.com website here:

The power of pension funds for African infrastructure
By Tom Minney
“Opening the elegant new six-lane toll bridge stretching cross Dar es Salaam’s Kigamboni Creek in April, Tanzania’s President John Magufuli called it “liberation” for citizens.
It represents a $135m investment by Tanzania’s National Social Security Fund, the state-run pension fund, and government. China Railway Construction Engineering Group built the 680-metre bridge with China Railway Major Bridge Group and say it is the longest cable-stayed bridge in East Africa.
It is also Tanzania’s first toll road – which residents say is worth paying for as it makes their lives easier. The development will lead to new residential housing and is hoped to boost tourism in the country.
The World Bank estimates Africa should spend $93bn – 5% of gross domestic product (GDP) – each year on infrastructure and the African Development Bank (AfDB) notes a $50bn financing gap to reach this. Local and international pension funds can help fill the gap.
The Bright Africa report by consultancy firm RisCura says that at the end of 2014 assets under management by pension funds across 16 major African markets amounted to $334bn. Some 90% of assets were concentrated in four countries: South Africa (with $258bn) Nigeria, Namibia and Botswana. Assets had grown more than 20% a year in East Africa and 25%–30% a year in Nigeria over the previous half decade.

Potential to drive growth
Pension funds mostly invest in local fixed-income bonds, with regulation a key driver of asset allocation. But as RisCura argues, pension funds are ideal to drive inclusive growth and social stability, including through investing in longer-term projects such as infrastructure: “Local institutional investors lend credibility and a measure of validation, and often serve as a catalyst for greater external interest. Local investors also allow global peers to leverage local knowledge and networks.
With longer investment horizons, pension funds can serve as anchor investors for infrastructure and social development projects,” says the report. South African pension funds lead the way, partly spurred by rules that allow them to invest 10% of assets through private equity.

Africa’s $111bn pension fund
The Government Employees’ Pension Fund (GEPF) with R1.6 trillion ($111bn) assets under management in March 2015 reported it had committed R62bn towards “unlisted and developmental assets” in the previous 12 months, including Touwsriver and Bokpoort solar power projects in South Africa; MainOne data and broadband telecommunications in West Africa; pan-African power generation through Aldwych Power; N3TC which operates and maintains 420km of South Africa’s N3 highway; and two hospitals.
Other investments listed include $21.6m into private airport concession TAV Tunisia through the Pan-African Infrastructure Development Fund (PAIDF) managed by Harith General Partners. GEPF invested $2.6bn into the first PAIDF fund by March 2015 and pledged up to R4.2bn for the second by 2020. Five other pension funds also invested in the $630m PAIDF I fund, which will last 15 years and invested into more than 70 African projects. PAIDF 2 recently announced first close after raising $435m, again with pension funds as key investors.
South Africa’s Eskom Pension and Provident Fund (EPPF) in 2014 invested $30m into infrastructure projects through private-equity house Abraaj, based in Dubai, as well as mobile-phone infrastructure through London’s Helios. EPPF chief executive Sbu Luthuli says “We have to diversify” and wants to put more than $100m into infrastructure projects – 1.2% of its total R120bn assets (as of June 2015). GEPF said that it had invested 1% of its assets into African equities outside South Africa at March 2015, compared to a target of 5% (R80bn).

New funds being created
Financial institutions and multilateral lenders are looking to speed up the process. For instance, the AfDB created the Africa50 fund with target capitalisation up to $10bn and says it has secured $500m. For the second round to $1bn it is targeting institutional investors, including African and global pension funds. Kenya’s government and parastatals such as Kengen are leading the way in selling local-currency bonds to finance infrastructure.
The network is growing. Harith works with Asset and Resource Management Company in Nigeria to invest in West African infrastructure and is setting up a $1bn COMESA Infrastructure Fund with PTA Bank for eastern and southern Africa.
In June Harith and its Aldwych arm announced links with Africa Finance Corporation (AFC) to create a $3.3bn power portfolio, supplying 30m people across 10 countries. Andrew Alli, president and chief executive of AFC, says: “By working together we can deliver tangible benefit for Africans, switching their lights on and stimulating positive economic growth on the continent.”

Politics and mistrust
But it’s not always that straight-forward. In February, Nigeria’s minister of power, works and housing, Babatunde Raji Fashola, called on the country’s pension funds, which manage some N5.8 trillion ($18.4bn), to invest more in infrastructure and other development projects. However, later in the year, newspapers reported that no infrastructure projects had been put forward that met the legal requirements of the 2015 regulations on investment of pension fund assets, including a minimum value of N5bn for individual projects and award through competitive bidding to a concessionaire with a good track record.
The Nigerian Labour Congress expressed members’ fears: “The thought of using our pension fund for investment in public-sector infrastructure development is highly frightening given the well-known penchant for mismanagement inherent in public-sector institutions in Nigeria … It is therefore immoral and careless to subject such fund which is the life-blood of workers to the itchy fingers of politicians, no matter how well intentioned.”
Despite the worries, confidence in governance is growing and attention is switching to building the supply of projects. As RisCura’s report notes: “In many countries, assets are growing much faster than products are being brought to market, limiting investment opportunities.”

Projects and stages
Projects typically go through several stages, starting with feasibility studies to create a “bankable” project; then building or developing the project; and finally operating it once it is established, for instance collecting the tolls on a highway and fixing holes. The last stage is usually the least risky and most suited for pension-fund investors.
The Africa50 fund follows other initiatives in funding early-stage projects in order to boost the supply and mobilise more financing for later stages. Kigamboni bridge took more than two decades. Africa’s fast-growing pension funds need a faster pipeline of investible and well-run projects.

Africa’s pension and institutional savings industry is crossing the threshold into a major growth path. Channelled appropriately, they can transform Africa’s business and investment landscape and boost economies and savings.

Institutional savings – pension, insurance and other funds – are emerging as transformative forces for Africa’s economies. Industry leaders and others will discuss it at AME Trade’s Pension Funds & Alternative Investment Africa Conference (PIAFRICA), to be held in Mauritius from 15– 16 March.

The theme is “How can we leverage pension and investment funds for the development of Africa?” Pensions in 10 African countries were tallied at $379 billion in assets under management (including $322bn in South Africa). It is forecast that pension funds in the six largest sub-Saharan African markets will grow to $622bn in assets by 2020 and to $7.3 trillion by 2050.

The aim of the PIAFRICA conference is to debate whether the environment is being created for these funds to go into productive investments that will ensure their members get good returns and that contribute effectively to Africa’s growth. PIAFRICA will bring together the leaders of pension funds and institutional investors, policymakers, regulators, capital-markets, private equity and other stakeholders and is endorsed by the African Securities Exchanges Association (ASEA)

Discussions will focus on maximizing Africa’s pension fund and institutional investor opportunity, and will revolve around the following topics:
• Key trends, challenges and opportunities for Africa pension funds, Insurance, mutual and social security funds
• Africa’s growing funds and their potential to develop capital markets
• How to achieve long-term benefits through investing in infrastructure and other alternative assets, including real estate
• Private equity as an investment avenue for pensions
• For and against more latitude to invest across African borders?
• Best practices for sustainable growth and trust in funds
• Capacity building and support tools
• Technology, fund administration and member services
• Country profiles: African pension funds

Pension funds in 10 African countries already have $379 billion in assets under management – 85% or $322bn of it based in South Africa – and they continue to grow very fast. That means careful thinking about how to nurture Africa’s savings pool while the need to deploy these resources most productively puts the spotlight on the search for quality investment assets.

For example, Ghana’s pension fund industry reached $2.6bn by Dec 2013 after growing 400% from 2008 to 2014. Nigeria’s industry has tripled in the last 5 years to some $25bn in assets by De 2013, and assets under management are growing at 30% a year. There are 6 million contributors, but many more Nigerians still to sign up pensions.

Pensions have a special place in the capital market as they take a longer-term view and can be patient in the hope of greater returns. Some pension funds, in Africa and elsewhere, argue that pensioners are not just looking at the value of their retirement income but also the quality of their lives, opening the way to carefully chosen investments in infrastructure, healthcare and other benefits which pensioners and their families might enjoy.

What are the African factors driving the growth of pension funds?
• Many countries have set up new regulators and even more are introducing regulations, including forcing more employers to provide pensions. With the new regulatory frameworks come structural changes such as the need for professional third party asset managers
• Changing demographics: The age group over 60 years is the most rapidly increasing, according to some research
• It’s a virtuous circle, many Africans want savings opportunities. If pension funds produce results, and are well run and good at communicating, people will respond.

The growth is only beginning. So far only 5%-10% of the population in sub-Saharan Africa are thought to be covered by pension funds and 80% in North Africa. Pension funds are still tiny in comparison to gross domestic product (GDP), which in turn is growing fast in many African countries – for example pension funds are about 5% of GDP in Nigeria, compared to 170% of GDP in Netherlands, 131% in UK and 113% in America.

Southern Africa is generally better served: Namibia has some $10bn in pension assets representing 80% of GDP and Botswana $6bn or 42% of GDP. The biggest pension schemes are usually government and social-security funds as well as local government and parastatal funds (such as Eskom in South Africa), as well as those of big corporations and multinationals.

Economist Charles Robertson of Renaissance Capital says conservatively that pension funds in the 6 largest sub-Saharan African markets will grow to $622bn in assets by 2020 and to $7.3 trillion by 2050.

What to invest in?

The challenge is how to invest the capital productively. Are Africa’s entrepreneurs, corporate finance and investment banking houses and capital markets rising to the challenge of bringing a a strong pipeline of investment-ready projects to keep up demand for capital?

Capital markets need to offer liquidity and transparency both to channel the foreign capital looking for African growth opportunities for their portfolios and now for domestic funds too. Liquidity can be a key problem, even in Africa’s world-beating Johannesburg Stock Exchange, where the Government Employees Pension Fund (GEPF) is thought to account for 13% of market capitalization and to be the country’s biggest investor in commercial property.

Big funds in small other Southern African capital market swamps can be like hungry hippos, snapping up promising new investments as they surface. Even if they feel satisfied from a good run of success on some of these investments, they can hardly disgorge them back into the liquidity pool for other traders because of the gnawing fear they would not find other local investments to fill their bulging portfolios.

Others share the worry. Eyamba Nzekwu of Nigeria’s Pencom was reported as saying: “Savings are growing much faster than products are being brought to the market to absorb these funds”. Pension fund growth is thought to have contributed to a 79% surge in Ghana stock market in 2013 as funds chased too few investments.

Regulators should encourage the fund-managers to upgrade skills fast to be more proactive in picking and trading stocks and African fixed income. They should also widen the space in the interests of helping the markets and the funds to grow through liquidity. This means, for instance instance, urgently relooking restrictions on cross-border investments, including into other African markets.

Private equity and infrastructure

The pension funds provide a huge opportunity for alternative assets, especially private equity. According to research by the African Development Bank’s Making Finance Work for Africa and the Commonwealth Secretariat, African pension funds are estimated to have invested some $3.8bn-$5.7bn in private equity and to have scope to invest another $29bn (see table below). Many countries are passing new regulations to allow investment into private equity and other unlisted investments. Funds have been experimenting – sometimes disastrously – with small and medium enterprise and other developmental investments.

International private equity fund managers such as Helios and LeapFrog have also seen the future, making investment in pension fund providers – Helios took equity in Nigeria’s ARM Pension Fund Managers and LeapFrog into Ghana’s Petra Trust.

Africa has huge need for infrastructure finance and pension funds could be the ideal pool of patient capital but more work needs to be done to increase the supply of investable projects and to increase capacity of pension funds to invest in projects directly or through infrastructure fund managers.

Savings are good for growth, provided there are productive assets for them to go into. Africa’s savings are rising, often driven by regulation, and international interest has been strong for years. Can Africa’s entrepreneurs, their advisors, private equity funds and the capital markets institutions rise to the challenge of building a big enough pipeline of great investment opportunities suited to the needs of these investors?

For more reading:
This article is heavily based on work by: Ashiagbor, David, Nadiya Satyamurthy, Mike Casey and Joevas Asare (2014). “Pension Funds and Private Equity: Unlocking Africa’s Potential”. Making Finance Work for Africa, Emerging Markets Private Equity Association. London. Commonwealth Secretariat. Available through MFW4A.
Another book is by Robertson, Charles (2012). “The Fastest Billion: The Story Behind Africa’s Economic Revolution”. Renaissance Capital. Read more here or buy it on Amazon (link brings revenue to this site).
Other articles are at The Economist on Nigeria’s pensions, African Business and Wall Street Journal.

South Africa’s Public Investment Corporation (PIC) has established 2 funds and plans to invest at least $1 billion into African investments outside South Africa, including R2.5bn ($213 million) in the current financial year to 31 March.

According to South Africa’s Finance Minister Nhlanhla Musa Nene, who is also Chairman of the PIC: “True to the GEPF mandate which requires that we commit 5% of assets under management (AuM) on the African continent, the PIC acted accordingly in the past year. That commitment stands. We have established 2 funds, namely: Africa Developmental Investments and Private Equity Africa, which will assist us to discharge our client-given mandate to invest on the rest of the continent. The commitment to invest in the rest of the continent is born out of a realization that our collective success is premised on economic integration.

South Africa’s Finance Minister – Nhlanhla Muse Nene

Acting CEO Matshepo More

“More importantly, the African economic narration has been positively changing. Over the last decade, the continent’s economic output has tripled, while it is projected that Sub-Saharan Africa will grow at an average of 5% in the coming decade. This growth means that the continent will be the second fastest growing region in the world after Asia. For this reason, the PIC will, in the new financial year, also focus on developmental investments in Africa with a minimum commitment of $500m for developmental investments in Africa and a further $500m towards private equity in Africa. The African story presents the PIC with unique investment opportunities and we are fully aware that part of this strategy should be to grab opportunities in Africa and reap rewards in a manner that promotes inclusive growth and creates decent work for the people of Africa.”

Earlier PIC had established the Pan African Infrastructure Development Fund with a target size of $1bn and attracting $625m of investments in its first year, and set up Harith Fund Managers to manage it.

R1.6trn of assets
The total PIC AuM came to R1.6 trillion ($136bn) according to the annual report for the year to 31 Mar 2014, tabled in Parliament last October. Strong listed equity performance helped boost returns to well ahead of benchmarks (including consumer price index + 3%), and AuM were up from R1.4trn the year before and R1.19trn in Mar 2012 and around R83bn in 1994. Nearly 90% of its assets are from the Government Employees Pension Fund (GEPF), with the rest from the Unemployment Insurance Fund, the Compensation Commissioner Fund and other clients.

African investments
The unlisted investments portfolio is divided into developmental investments, private equity and properties. The annual report separates “Africa” from South Africa and the “Africa” developmental investments are focused on energy, transport and logistics, social and infrastructure, water and ICT; private equity to focus on “consumer-driven sectors, other sectors will be viewed opportunistically” and properties are retail, industrial and offices.

The African investment portfolio outside South Africa was valued at R7.9bn ($672m) at 31 Mar and the largest purchase during 2013/14 was $289m for a 1.5% stake in Nigerian listed cement firm Dangote Cement. The first African investment was a stake in Ecobank Transnational Incorporated Ltd.

Development impact
The PIC also has a strong commitment to investments in economic infrastructure, environmental sustainability, social infrastructure, priority sector (high labour intensive sectors), Small, Micro and Medium Enterprises (SMMEs) mostly in South Africa. According to the Minister: “During the 2013/14 financial year, R11.4bn worth of unlisted investments were approved, of which R4.8bn have already been disbursed. The impact on social returns was significant:
• In excess of 7,805 jobs (directly and indirectly) were created and 78,636 jobs were sustained
• 309 SMMEs have been funded and underwent entrepreneurship training
• The PIC is emerging as a leader in the development of green industries by directly and indirectly funding renewable energy projects that will generate in excess of 1,558 megawatts of electricity.”
The PIC is also supporting black asset managers through training as part of a BEE (black economic empowerment) incubator programme for South Africa’s asset management industry and has entrusted some R50bn of assets to 12 firms. It is also supporting transformation of stockbroking and said it paid 86% of brokerage fees to brokers that met Level 4 or better BEE as classified by the Department of Trade and Industry, and aims to pay 50% of all brokerage to Level 2 or better firms in the current year.

Acting CEO Ms Matshepo More (previously Chief Financial Officer, the previous CEO Elias Masilela resigned on 31 May 2014) said that “developmental” unlisted investments in the year came to R6.9bn and in the current year to Mar 2015 it will invest at least another R2bn in “social and economic infrastructure”.

Profit was R209m (up from R130m in 2013) and 1% of profit after tax is set aside for corporate social responsibility. It has a Corporate Governance and Proxy Voting Policy outlining its shareholder activism and is a signatory to the United Nations Global Compact and the United Nations Principles for Responsible Investing. One example was blocking takeover of listed pharmaceutical company Adcock Ingram by Chilean company CFR “to unlock value using local talent and also to preserve jobs”.

The PIC annual report was reported in South Africa’s Business Day in January and on South Africa Info in October 2014 and the last annual report can be obtained here.

Initial public offers (IPOs) on African stock exchanges for the first half of 2014 has raised capital totalling $808.5 million, compared to a total of $757.5m raised throughout 2013. The data show there have been 9 African IPOs in 2014 to 30 June, compared to 18 in 2013 and 10 in 2012 on stock exchanges in Casablanca, Dar es Salaam, Johannesburg, Nigeria and Tunisia when the total raised was $342.6m.
The figures are given in a blog in the Wall Street Journal, citing figures from consultant EY.
According to the WSJ blog, domestic and international pension funds and other corporate institutional investors are putting more cash into African markets. It highlights new money from Africa’s fast-growing domestic pension funds and growing confidence in African frontier market equities, quoting Joseph Rohm, portfolio manager at Investec Asset Management: “These are nascent capital markets and they are illiquid markets. But what has been encouraging is that, for the first time in a long time, we are starting to see more capital raisings.”
He attributed the IPO increase to an earlier boom in private-equity investments: “We have known for a long time that the amount of private equity in African markets—and more broadly in frontier markets—is unprecedented and we are starting to see those opportunities coming to public markets.”
Bourse de Tunis saw 2 IPOs in 2012, but this was up to 11 last year and 2014 is also looking strong. WSJ[ blog cites Slim Feriani, chief executive officer and chief investment officer of Advance Emerging Capital, a Tunisian, who said: “In the next 5 to 10 years we are bound to see more IPOs. As it stands, some of the hidden gems are still in private hands,”
The blog also quotes Razia Khan, head of African region research at Standard Chartered, who said Africa’s IPO activity tends to be concentrated in key markets with most big deals so far in 2014 in North Africa. She added the current listing boom is evidence that the African markets are still recovering from the shock of the financial crisis in 2008: “The IPO activity lagged this recovery in growth—it’s not surprising that we’re seeing a rise, but the scale of it is interesting.”

New giants are arising in African investments – the domestic pension funds. In Nigeria the National Pensions Commission (PenCom) estimated registered pensions to be worth US$14bn in June 2011, with asset values up by 8% in three months; Namibia’s Government Institutions Pension Fund alone is worth some $6bn; South Africa’s pension funds grew at a compound annual growth rate of 14.3% in US dollar terms over 10 years to December 2010, including over 28% in 2010 and Tanzania’s pension industry was audited at $2.1bn for 2010, and growing by 25% a year.

The number of pensioners is set to soar, according to United Nations figures, as the number of people over 60 years in Africa will rise from 55m in 2010 to 213m by 2050, compared to 236m Europeans over 60 years old by 2050. Current pension funds cover only 5%-10% of Africans ranging from 3% in Niger but it used to be 80% in North African countries such as Egypt, Libya and Tunisia. Pensions are not available at all in some countries.

Regulatory reforms are driving the growth of African pensions. Recent reformers include Cote d’Ivoire, Gabon, Kenya, Nigeria, Senegal and Uganda. Ghana created a National Pensions Authority with a 2010 act. Reform in Kenya, including investment guidelines and a new regulator, resulted in strong growth and good investment returns. Tanzania passed the Social Security Regulatory Act in 2008. The rising pension industry is likely to boost fund management and equity industries, exits for private equity and even to fill some of the $45bn annual funding gap for infrastructure. For instance, In January 2012, Tanzania’s National Social Security Fund signed an agreement to finance 60% of the $137m cost of building Kigamboni Bridge. South Africa’s $130bn Government Employees Pension Fund is a major investor in the Pan-African Infrastructure Development Fund which raised $625m in 2007 and is targeting $1bn on its second offering.

For more details on Africa’s pension industry, please check my article published in The Africa Report magazine and website, here is the link www.theafricareport.com and for brief profiles of 6 giant African funds, check here.